Group auditing: Tiger pride enterprises

Extract

[...] Therefore, a group audit for Tiger Pride Enterprises should include only the financial statements of the business units as its components. Collings defines a significant component as one that is of individual financial significance to the group with reference to some specific nature of circumstances (2011). In his case, this component may include significant misstatement to the group's financial statements. Notably, the fact that a component is not material does not imply that the component is directly insignificant. In some cases, Budescu, Peecher and Solomon (2012) claim that a component may be of less material yet present a significant risk of misstatement of the financial statements of the group. [...]

[...] Unit however, is included as financially significant because it is encountering low margin that is subject of discussions by the corporate management. Moreover, some of its goods have been returned as defective and the management has established that the top management of the unit may be pressuring the workers to the extent that they sell defective goods. Therefore, if the returned goods are not accounted for may make the audit report miss some important facts and also provide inaccurate estimates for the sales that may significantly affect the financial statements of the group of as a whole. [...]

[...] After every two years, an auditing team from the corporate offices audits the financial statements of all the divisions. Also, the financial statements of the various divisions consist of the various financial statements of different business activities within the division. The financial statements of Tiger Pride Enterprises include the financial information of more than one component and further include the analysis of each of the components as per the standards. The divisions of the Tiger Pride Enterprises are considered as components because they exist as legal entities and perform different operations each. [...]

[...] One, the auditor should have an understanding of the component with their specific industry environment. The environment of the industry should be understood in terms of its regulatory framework, and other external factors such as how competitive the industry is, general economic conditions, the legal and political environment, and the applicable financial reporting framework. As it regards the nature of the company, the auditor should assess the organizational structure and the personnel in management of the company, the sources of funding for the component, the operating characteristics of the component, how the component earns its income, including the profitability of its key products and services and finally the relationship that the component has with its suppliers, customers, and the corporate management. [...]

[...] Retrieved 19 March 2015, from http://journalofaccountancy.com/issues/2013/mar/20126525.html Stewart, T. R., & Kinney Jr, W. R. (2012). Group Audits, Group-Level Controls, and Component Materiality: How Much Auditing Is Enough?.The Accounting Review, 707-737. Thomas, W., & Wedemeyer, P. D. (2013).Clarifying the Standard for Group Audits: Impact of New Standard on Individual Engagements Will Depend on the Manner in Which the Practitioner Has Performed Group Audits in the Past.Journal of Accountancy, 215(3), 32. [...]